Dec 18, 2017

Axios Pro Rata

By Dan Primack
Dan Primack

You're invited to a live Axios interview this Wednesday morning in D.C. with top White House economic advisor Gary Cohn. RSVP here. Expect lots of talk about taxes and 2018 agenda items. Okay, here we go...

Top of the Morning

Axios has learned that futuristic transportation startup Virgin Hyperloop One has agreed to raise $50 million in new private funding from existing investors Caspian Venture Capital (Russia) and DP World (Dubai). It also plans to name Richard Branson as chairman, while co-founder Shervin Pishevar has formally resigned his co-chairman role.

  • Backstory: This is a big save for the Los Angeles-based company, which was quickly running out of cash and trying to fundraise in the midst of Pishevar's troubles. Had it not come through, Hyperloop One's 300 or so employees might have found pink slips in their stockings. More details here.

• More deal scoop: Amazon is in advanced talks to buy Sqrrl, a Massachusetts-based cyber "threat hunting" company whose founders used to work for the NSA. No final signatures yet, but word is that the price-tag is just a bit above $40 million (which repays the VCs, but not too much else).

• More Branson-related news: When Alaska Airlines purchased Virgin America last year, it did more than freak out fans of dance-centric airline safety videos. It also merged the country's most fuel-efficient airline (Alaska) with its least fuel-efficient airline (Virgin America). More here.

• Macro M&A: The healthcare consolidation trend is expected to continue this week, as insurer Humana reportedly is in final talks to purchase acute care provider Kindred Healthcare. The deal could value Kindred at around $750 million (not including $3.2b of long-term debt), with private equity firms TPG Capital and Welsh Carson Anderson & Stowe playing buy-side roles. Don't be surprised to see an official announcement within the next 24 hours.

• Tax talk: It appears that the GOP tax bill will become law later this week, even though key vote Sen. Bob Corker (R-TN) admits that he didn't read the actual text before pledging his support. Here's an easy-to-understand primer on the key changes. Some additional details:

  • Carried interest will continue to be treated as capital gains, with the only change being that the qualifying hold period extends from one year to three years.
  • Companies will get to deduct corporate interest on up to 30% of EBITDA for the first four years, and then the 30% ceiling gets tied to EBIT. This is basically a merger of the original House proposal (focused on EBITDA) and the Senate proposal (tied to EBIT), but expect private equity to lobby hard to keep EBITDA in place after the four years expires.
  • There will be no changes to tax-exempt status for municipal bonds used to build sports stadiums, despite its removal in the House proposal.
  • Startup employees will get a 5-year tax deferral on exercised stock options, or until there is a liquid market for the securities. One caveat is that the liquid market clock turns on at the moment of IPO, even if employee shares are locked up for subsequent months. This could put some onus on companies to go public before Q4 begins.
  • Many real estate investment partnerships will qualify as pass-through entities, thus qualifying for much lower tax rates. This is the thing that tripped up Corker, as he (and Trump) stand to benefit.
  • Several agenda items pushed by the VC lobby didn't make the final cut, including providing safe harbor to startups from net operating loss limitations and reforms to qualified small business stock rules.

Jerry Richardson announced that he plans to sell the Carolina Panthers at the end of the NFL season, just hours after Sports Illustrated reported that the team settled with four employees over alleged workplace misconduct by Richardson. The claims included repeated sexual harassment against female employees and that Richardson directed a racial slur toward an African-American scout.

  • Why it's the BFD: Because this will be the first NFL franchise sale in memory that comes when the sport looks to be on a downswing rather than an upswing, particularly when it comes to TV ratings. The last sale to a third party came in 2014, when the Buffalo Bills were sold to Terry Pegula for $1.4 billion.
  • ROI: Richardson paid $206 million for the Panthers in 1993. Forbes now estimates that it's worth around $2.3 billion. Hip-hop mogul Sean Combs already has indicated buying interest via Twitter, while local speedway owner Bruton Smith expressed interest last year.
  • Bottom line comes from SI's lead: "Friday was Jeans Day, when most staffers at the Carolina Panthers team offices would wear denim to work. The female employees knew what that meant. As the team's owner, Jerry Richardson, made his rounds on the way to his spacious office, he would ask women to turn around so he could admire their backsides."
Venture Capital Deals

🚑 Aptinyx, an Evanston, Ill.-based developer of therapeutics for treating neurologic disorders, has raised $70 million in Series B funding. Bain Capital Life Sciences led, and was joined by Adage Capital, Agent Capital, HBM Healthcare Investments, Nan Fung Life Sciences, Partner Fund Management, Rock Springs Capital and return backers New Leaf Venture Partners, Frazier Healthcare Partners, Longitude Capital, Osage University Partners, Adams Street Partners, LVP Life Science Ventures, PathoCapital, Goudy Park Capital, Beecken Petty O'Keefe & Co. and Northwestern University.

• Quinyx, a Stockholm-based provider of workforce management software, has raised $12 million in new funding led by Battery Ventures.

• Mirror, a San Francisco-based maker of a custom emoji keyboard that utilizes facial recognition, has raised $3.5 million from SoftBank Group, Greylock Ventures, SV Angel, Peter Thiel, Y Combinator, I2BF, Data Collective, Peter Diamandis and Kevin Durant.

• Fano Labs, a Long Kong-based developer of AI-based call center software, has raised an undisclosed amount of funding from Horizons Ventures.

Private Equity Deals

• Apollo Global Management has agreed to acquire Phoenix Services, a Kennett Square, Penn-based provider of steel mill support services, from Olympus Partners. No financial terms were disclosed, although an earlier report suggested that Phoenix Services could garner nearly $900 million.

🚑 Beecken Petty O'Keefe & Co. has acquired Zenith American, a Mokena, Ill.-based administrator of benefits to Taft-Hartley trust funds, from Water Street Healthcare Partners.

• The Blackstone Group has agreed to acquire an 80% stake in La Trobe Financing, an Australian mortgage lender.

🚑 The Carlyle Group and Level Equity have agreed to acquire Net Health, a Pittsburgh-based provider of software for healthcare professionals, from Spectrum Equity.

• Dalmore Capital and GLIL Infrastructure have agreed to acquire a minority stake in UK utility Anglian Water for £395 million from 3i Group.

• Impresario Entertainment & Hospitality, an India-based casual dining company, has raised an undisclosed amount of private equity funding from L Catterton Asia.

• Fireman Capital Partners has agreed to acquire tea brands Sweet Leaf Tea and Tradewinds from Nestle North America.

Sentinel Capital Partners has acquired Captain D's, a Nashville-based franchisor and operator of 530 quick-serve seafood restaurants in 21 states, from Centre Partners.

• Thomas H. Lee Partners has agreed to invest more than $100 million into Chicago-based mortgage lender Guaranteed Rate for a minority stake.

Busted Deals

• Global A&T Electronics, a Singapore-based chip assembler acquired in 2013 by Affinity Equity Partners and TPG Capital, has filed for Chapter 11 bankruptcy protection.

More M&A

Hershey Co. (NYSE: HSY) has agreed to acquire Amplify Snack Brands (NYSE: BETR), an Austin, Texas-based snack-maker whose brands include SkinnyPop, for $1.6 billion. The $12 per share price represents a 71% premium to Friday's close.

• Oracle (Nasdaq: ORCL) has agreed to acquire Aconex (ASX: ACX), an Australian maker of collaboration software for the construction market, for US$1.2 billion.

• Tencent and have agreed to pay $863 million for a 12.5% stake in Chinese e-commerce company Vipshop (NYSE: VIPS).

• Thai Beverage has agreed to acquire a 54% stake in Vietnamese brewer Sabeco for around $5 billion, via a privatization auction.

• Thales (Paris: HO) has agreed to acquire Dutch cybersecurity company Gemalto (Amsterdam: ATO) for 4.8 billion, topping an earlier €4.3 billion offer from Atos (Paris: ATO).

• Vonovia, a German residential property company, has agreed to acquire Austrian peer Buwog for approximately €5.2 billion.


• Olympus Partners, a Stamford, Conn.-based private equity firm, has closed its seventh fund with $3.04 billion in capital commitments.

• TPG Capital has closed its fourth growth equity fund with $3.7 billion in capital commitments.

• Trilantic Capital Partners is raising upwards of $2.25 billion for its sixth flagship buyout fund, per an SEC filing.

• Warburg Pincus has closed its first financial services-focused fund with $2.3 billion in capital commitments.

It's Personnel

• Ares Management said that Michael Arougheti will take over as CEO from Tony Ressler, who will serve as executive chairman. It also announced that CFO Michael McFerran will add COO to his title.

Final Numbers
  • Global venture capital investment has already hit an all-time record, according to PitchBook, but deal-size count and exits are down from 2016 levels.
Dan Primack